Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153539
Authors: 
Babecký, Jan
Du Caju, Philip
Kosma, Theodora
Lawless, Martina
Messina, Julián
Rõõm, Tairi
Year of Publication: 
2009
Series/Report no.: 
ECB Working Paper 1105
Abstract: 
It has been well established that the wages of individual workers react little, especially downwards, to shocks that hit their employer. This paper presents new evidence from a unique survey of firms across Europe on the prevalence of downward wage rigidity in both real and nominal terms. We analyse which firm-level and institutional factors are associated with wage rigidity. Our results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models (e.g. efficiency wage theory, insider-outsider theory). We also find that wage rigidity depends on the labour market institutional environment. Collective bargaining coverage is positively related with downward real wage rigidity, measured on the basis of wage indexation. Downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations.
Subjects: 
Downward nominal wage rigidity
Downward real wage rigidity
European Union
survey data
wage indexation
JEL: 
J30
J31
J32
C81
P5
Document Type: 
Working Paper

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